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where appropriate.
With the Australian securities litigation process
straightforward and relatively risk free compared
to other jurisdictions, funds should consider
registering claims in all local matters where they
suffer meaningful losses. Institutions with multiple
funds or accounts under management can work
with case organisers to streamline the joining
process using group authorisations and other
methods.
However, the fiduciary waters become murkier
as Australian funds look overseas. Recent growth
in assets has outpaced growth in the local equity
markets. As a result, funds are increasingly
seeking investment opportunities abroad.
Australian super funds will likely allocate 60 per
cent of their pension assets in foreign markets
over the next 10 years, according to Business
Insider Australia’s Here’s Why Australia’s Biggest
Funds Are Moving Huge Amounts of Money Into
Overseas Stocks article from April 2014.
Greater investment in non-Australian securities,
issuers, and exchanges will result in eligibility for
securities litigation matters in other jurisdictions,
including in the US and Europe. However, funds
must be cautious about applying the same
fiduciary policies and procedures used for local
matters, and should instead tailor them to the
distinct risk profiles for each country.
In terms of risk, the securities litigation
processes in the US and Canada most closely
resemble Australia. These three countries
employ ‘opt-out’ classes that encompass all
eligible investors unless they choose to exclude
themselves. The system operates without litigation
funders. Law firms work on a fully contingent
basis, advancing all case expenses, and there
is no risk of adverse-party cost shifting. There’s
no active involvement required, and if cases are
successful, recoveries get distributed by means of
a similar claims submission process.
Outside of these two countries, most
jurisdictions require filing suit directly as a named
plaintiff. Funds will not be afforded statutory
protection against adverse-party cost shifting,
and will need to be more directly involved in
proceedings. There are also few if any past
recoveries against which to benchmark likelihood
of success.
Funds should ensure they have substantial
losses before getting involved in jurisdictions
with greater risks. In Australia, little is required
from participating investors beyond providing
information to substantiate their trades. By
contrast, in the UK, securities litigation typically
requires investors to prove reliance, among other
claim elements. The UK has uncapped adverse-
party cost shifting, so investors must ensure case
organisers maintain sufficient levels of assets or
insurance against it.
Outside Australia, there are often a greater
number of organisers and funders, and choosing
among them isn’t as simple as picking the one
with the most sterling reputation. In addition
to considering the size of eligible losses—which
can differ significantly among organisers—
investors must also compare differences in
covered securities, relevant time periods, funding
structures, legal fees and the proposed litigation
strategies. This calculus is further complicated
by Dutch Foundations, which are formed in the
Netherlands with the goal of negotiating a global
settlement on behalf of all investors and operating
in parallel with litigation efforts in the corporate
defendant’s home country.
As Australian funds increasingly invest globally,
they should consider implementing fiduciary
policies for involvement in securities matters
tailored to the particular risks associated with
each jurisdiction. Funds must also balance
potential recoveries against the cost, risks and
burdens of involvement, and equip themselves
with information necessary to make informed
choices among competing organisers.
Michael Lange is counsel of securities litigation at
Financial Recovery Technologies.
Superfunds November 2016